China’s inflation rises faster than expected

August 09, 2024 (MLN): China’s consumer prices rose more than expected in July, largely due to seasonal factors like weather, leaving intact concern over sluggish domestic demand and boosting the case for more policy support, as reported by Bloomberg.

The consumer price index climbed 0.5% from a year earlier, exceeding the 0.3% estimate in a Bloomberg survey, data from the National Bureau of Statistics on Friday show.

Excluding volatile food and energy costs, core CPI rose 0.4%, the least since January, indicating lingering weakness in overall demand.

“Unfavorable weather conditions and the low base for pork prices from last year, instead of rising domestic demand, were the major drivers,” said Serena Zhou, senior China economist at Mizuho Securities Asia Ltd. “We anticipate coordinated fiscal and monetary support in the second half of 2024.”

China’s economy is battling deflationary pressures, with one measure showing the longest streak of falling consumer prices since 1999.

Weak consumption and investment demand have led to intense price wars in sectors including electric vehicles and solar, hurting companies’ profits and making consumers even more inclined to delay purchases as they expect costs to keep dropping.

Data on Friday also showed factory-gate prices extending a deflationary run that began in late 2022. The producer price index declined 0.8% from a year earlier, in line with the drop in June.

Dong Lijuan, chief statistician at the NBS, attributed the rise in the headline CPI figure to “a continued recovery in consumption demand.” Yet she also noted that high temperatures and rain in some regions had an impact on prices.

Adverse weather pushed up vegetable and egg prices in July, reversing losses the previous month. That helped food prices snap a year-long run of contraction, which has been a major drag on consumer inflation.

The fastest surge in pork prices since 2022, thanks to a low base from last year, also contributed to the increase.

Among non-food items, the prices of cars, smart phones and home appliances led the declines, reflecting price wars and persistent spillover impact from a housing downturn.

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